The Creeping Public-Pension Debacle

Demographic aging is the social and economic equivalent of climate change – a problem that we all know must be addressed, but which we’d rather leave for future generations to solve. Unfortunately, procrastination on raising the retirement age – though understandable, given our troubled times – will come at a high cost.

LONDON – If developed countries acted rationally, and in the interest of electorates that understood how their tax money is spent, they would set their public-pension retirement age at or above 70. But most developed countries have retirement ages below this mark, and, despite some progress, it will be decades before they catch up. In the meantime, Western welfare states will remain financially unviable, economically sickly, and politically strained.

Demographic aging is the social and economic equivalent of climate change: it is a problem that we all know must be addressed, but which we would rather leave for future generations to solve. The impulse to put things off for a later day is understandable, given current economic and political troubles; but when it comes to public pensions, procrastination comes at a high cost – even more so than in the case of global warming.

In 1970, the average effective retirement age for French male workers was 67, which was roughly the same as male life expectancy at that time. Now, the effective retirement age in France is just below 60 (the official retirement age is 65, but in practice public pensions can be drawn much sooner), even though male life expectancy is nearly 83.

The Ponzi-like scenario inbuilt in the retirement system with the later you arrive the lesser it is likely that you will get anything seems to have a sibling in the economic development of several low and mid income countries. I don't expect for example Mali to become a high-income country, through technological innovation, backed by research and patents and it's subsequent output of high added value products anytime soon, just like I don't expect the political market dominance of the older over the younger to recede anytime soon unless life expectancy starts to shrink. There might be a link between voting rights and intellectual rights.

Usually, macroeconomics journalists do reasonably well at describing a problem, their (analytical) diagnostic is poor, and recommended solutions are nonexistent or to be safely thrown in the garbage can. This article respects that rationale; even though the author acknowledges problems in corporate behaviour he fails to suggest anything but the usual conservative (don't touch the rich) recipes. As any rational analysis shows there are many things to be modified and corrected in the global economy, and uber-protecting big money is utterly counter-indicated.

Some clarity is needed in this article. I'm sure the author is aware that his OECD pension data, to quote OECD "also includes social expenditure on services for the elderly people, services such as day care and rehabilitation services, home-help services and other benefits in kind. It also includes expenditure on the provision of residential care in an institution". So the data goes beyond the layman's understanding of "pensions."
The pension question that should be discussed is: are the referenced plans fully funded and actuarily sound, or in deficit due to lack of (Government) funding etc? Here in Canada most public servants contribute about 7% of gross earnings annually towards their pension. Governments also contributes proportionately. In several public service pension plans (eg. OMERS and Ontario Teachers Plans) the funds are managed at arms length by investment professionals and in recent years have been earning about 9% annually.

Well ... there is the beginning of a counter to the aging population. Globally, there are large numbers of people who would love to live in the EU - or N America or Australia. Large numbers of these are at least as well educated as the 'locals', and very highly motivated to succeed. Of course there are all the obvious dreary cultural impediments, but if these sink the ship, so much the worse for the native passengers. Inflexibility on the 'natives' part. Brexit, eg. But really - if the choice is between slow decline into nonagenarian decrepitiude, or a possibly expanding and glowing new future, all that's stopping this is pure fear and prejudice. Of course, it may still triumph. Shame on us, if so. We'll become 'One with Nineveh and Tyre,' as Kipling so eloquently put it ('Recessional').

ABSTRACT: The lump-of-labor fallacy has been called one of the "best known fallacies in economics." It is widely cited in disparagement of policies for reducing the standard hours of work, yet the authenticity of the fallacy claim is questionable, and explanations of it are inconsistent and contradictory. This article discusses recent occurrences of the fallacy claim and investigates anomalies in the claim and its history. S.J. Chapman's coherent and formerly highly regarded thery of the hours of labor is reviewed, and it is shown how that theory could lend credence to the job-creating potentiality of shorter working time policies. It concludes that substituting a dubious fallacy claim for an authentic economic theory may have obstructed fruitful dialogue about working time and the appropriate policies for regulating it.

"Beyond lobbying, the current system is upheld by mythology: the belief that keeping older people in the workforce worsens unemployment. It does not, and this is what economists call the “lump of labor fallacy” – the idea that handing out pensions frees up employment for younger people, as if there were a fixed number of jobs to go around. "

Guff. This lump of labor canard is fraudulent. http://econospeak.blogspot.com/2016/09/the-outlaws-of-political-economy.html

Searing analogy: pensions are economic equivalent to global warming - kick the can down the road. I predict that a few countries will crack under pensions before others revamp the parameters. Which to fail?? hard to know

Personally, if I am physically and mentally well and in a decent job, I have no problems envisaging working to 70. However what if I am not fit and well. Will I be driven into poverty and receive no support from society? Will I be means tested and have to accept charity despite working until non capable of doing so? Is the author comfortable that people die or does he just meet retirees when they are on a cruise?

Why should companies and the already rich receive subsidises and bailouts when individuals are left to suffer? When there are trillions of dollars sitting in tax havens and yet even in USA millions struggle in poverty to feed themselves.

Also do we really understand money and debt at all? Various central banks have injected trillions of euros and dollars into the financial system without a sniff of inflation.

The possibility is that the system can be changed. That tax systems can be rebalanced and that pensions can be paid for. We just need the politic intellect and will to pull together this system. In many places, there are already signs that this happens and works but more needs to be done.

Dear Euan Taylor, the answer to your question about falling sick at age 66 (or whatever) and being incapable of work would have to be the same as it is now in many countries for someone to whom that misfortune occurs at age 56 or 46: welfare benefits specifically designed for that eventuality. This will surely make more sense than offering pensions to everyone, healthy or sick, just in case.
BE

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